Basically, the future can never be understood with certainty. Even the most advanced risk management is only able to minimize uncertainty. It can never eliminate it.
By
A. PRASETYANTOKO
·5 minutes read
Basically, the future can never be understood with certainty. Even the most advanced risk management is only able to minimize uncertainty. It can never eliminate it. Likewise, the potential for a global recession in 2020 raises so many questions.
Our job is only to better understand its potential and impact and prepare its mitigation. The World Bank in its presentation of the Global Economic Risks and Implications for Indonesia explained that the impact of the global crisis on Indonesia would not be as severe as Turkey, Argentina and other countries in which the economies had declined for more than two quarters.
The biggest risk is capital flight from financial markets. Although, they will have the potential to return, the amount will be smaller. The World Bank is even more concerned about the medium-term impact, because if it is not mitigated, it could drag down economic growth to 4.6 percent by 2021.
In a message sent by the WB to President Joko “Jokowi” Widodo, Indonesia\'s economic productivity was shown to be so weak that it was unable to attract foreign direct investment. In June-August 2019, as many as 33 companies listed on the Chinese stock exchange announced their relocation or expansion outside of China. Of the total, 23 companies plan to go to Vietnam, Cambodia, India, Malaysia, Mexico, Serbia and Thailand. In 2017, 73 companies relocated their factories from China, Japan and Singapore and 43 companies of them went to Vietnam, 11 to the Philippines and 10 to Indonesia.
Responding to this fact, in the next two years there should be progressive, systematic and measurable structural reforms concerning various aspects. Thus, macroeconomic fundamentals can be maintained and the potential for slowing economic growth due to external pressures can be mitigated.
The president must intervene to lead the cross-sectoral team to anticipate these developments.
Micro fundamental
Is it true that if the world eventually goes into a recession in 2020, we would not be dragged that far? One key is the condition of the micro fundamentals, namely the health of the company\'s balance sheet.
If macroeconomic fundamentals are clouded with uncertainty, micro-fundamentals are prone to being hidden. Usually, a crisis is debatable, until it happens, then it becomes real. As a result, the anticipation of the crises is often too late.
To ensure that Indonesia will not be dragged down into crisis, the anticipation in the microeconomic fundamentals is needed. The World Bank indicates the financial problems of AJB Bumiputra and PT Asuransi Jiwasraya (Persero) as an early warning.
Since the tenure of President Jokowi, the role of state-owned enterprises as development agents has become increasingly prominent. They get a lot of assignments to carry out infrastructure development in various fields, ranging from airports, ports, toll roads, dams, to energy. On the one hand, many SOEs are expanding very fast, even within five years they have turned into conglomerates, especially SOEs involved in constructions. On the other hand, their risk profile is increasing.
Referring to information from the SOE Ministry’s website, PT Waskita Karya’s assets, which totaled only Rp 12.54 trillion in 2014, jumped to Rp 124.39 trillion in 2018, while PT Wijaya Karya\'s assets rose sharply from Rp 15.91 trillion to Rp 59.23 trillion in the same period. An increase in assets is followed by an increase in liabilities.
PT Waskita Karya’s obligation (debts), which totaled only Rp 9.6 trillion in 2014, rose significantly to Rp 95.5 trillion in 2018. While the obligations of PT Wijaya Karya rose from Rp 10.93 trillion to Rp 43 trillion. The ratio of liabilities to assets is one indicator of the company\'s default risk.
Almost all SOEs are involved in construction at a ratio of above 75 percent, some even close to 85 percent. The economic value of a number of projects undertaken by SOEs is low or the rate of return on investment is very long because the projects are assignments (from the government). They also often suffer a cash gap. In this context, the risk profile of state companies increases so that the cost of obtaining funding is also higher.
Over the next five years, the government has a major project to relocate the national capital. A number of SOEs have been assigned to carry out the projects. Do not let these demands sacrifice risk management.
Another risk from project assignments is corruption. It cannot be denied, lately there was a long list of SOE officials being arrested by the Corruption Eradication Commission (KPK), involving the government (regional) and political parties.
This fact is worrying because corruption practices in SOEs seem to occur on a massive scale. This phenomenon cannot be tolerated given that SOE assets have exceed Rp 8,000 trillion or around three times our state expenditure.
While the recession looms, efforts to weaken the KPK are unacceptable. Today, the facts are quite clear, outside developed countries as a source of crisis, countries with poor governance are more likely to be affected by the crisis. We hope we will not be dragged down by the crisis when the world recession arrives. For this reason, in addition to risk management at the macro level, micro-fundamentals must also be carefully guarded.
A. Prasetyantoko, Lecturer at Atma Jaya Catholic University Jakarta